Petronas Dagangan ‘to continue to outperform’

PETALING JAYA: Kenanga Research has retained its “outperform” call on Petronas Dagangan Bhd (PetDag) given its resilient business volume and the weekly pump price review, which should help the group mitigate inventory cost shock to ensure better earnings.

The research house said PetDag reported yet another satisfactory performance in the second quarter 2017 (2Q17) results with sales volume rebounding 3% sequentially on the back of high traffic volume for the school and Hari Raya holidays.

“Nonetheless, traffic flow is expected to come off in 3Q17 following the high base in the preceding quarter. This is unlikely to be alarming as the stable MOPS (Mean of Plats Singapore) price movement should sustain profit margin if not push it higher,” said Kenanga.

Its price target for PetDag is maintained at RM26.70 per share. Risks to its call include sharp drop in business volume and a sudden plunge in MOPS within a short time.

Meanwhile, HLIB Research said PetDag’s 2Q17 core net profit came in at RM253.8 million, bringing 1H17 core net profit to RM485.4 million, accounting for 49.3% of HLIB and 51% of consensus.

“While the company’s balance sheet remains solid, no near-term catalysts are present while volume growth outlook remains muted in the longer term,” said HLIB, which is maintaining its hold call on PetDag.

It said volume growth outlook for the retail segment (especially petrol sales) remains muted as demand for car fuel could moderate due to the recent start of Mass Rapid Transit operations, which encourage public commuting.

The commercial segment volume outlook is also subdued as economic growth is increasingly driven by services while industrial growth is expected to be steady.

Cost optimisation remains the main focus of the group so that it aims to operate in a leaner condition in order to ride through difficult times in the economy.

Risks include further weakness in consumer sentiment, while the volatility of MOPS pricing which might affect group’s product gross margins.

“We lower our target price to RM24.64 from RM26.70 as we now peg to a lower FY18 PER (price-earnings ratio) of 24 times (from 26 times previously) to account for weaker long-term volume growth outlook,” said HLIB.

PetDag shares closed unchanged at RM24 today with 193,100 traded.